Every year millions of transactions are documented for tax related purposes. Users (including any agents acting on behalf of the user) typically enter user transactions into financial management software as a way to document information prior to preparing for supplying information for tax purposes, planning budgets, determining expenses, determining net worth, projecting future financial condition, or performing any other financial event.
In addition, to efficiently track and/or classify transactions, it is helpful for users to group transactions into categories (i.e., determined by a type or classification of a transaction). Categories within a financial software application may be provided by default or be user-defined.
A category may be designated within a software application as tax-related if the category is one which will most likely contain transactions of interest when completing tax forms or supplying information for tax purposes. The designation of a category as tax-related may be determined by using either a default designation provided by the software vendor or a user-defined association.
In addition to being designated as tax-related, the category may also be associated with a tax line item. The tax line item relates to a line item that appears on a tax form for an entity with taxing authority, such as those issued by a federal government, state government, provincial government, county government, parish government, a school district, and/or other taxing authorities.
To designate a transaction as tax-related and associated with a specific tax line item, the transaction must be associated with a category designated as tax-related and associated with the specific tax line item. Once a transaction is associated with a tax-related category that is associated with a specific tax line item, the transaction becomes automatically and necessarily associated with the specific tax line item defined by the category, if any. If a user seeks to assign a transaction with a specific tax line time, but a category is either not designated as tax-related and/or not associated with a specific tax line item desired, an entirely new category (generally using a variation of the name for the prior category) with the required associations must be created.